Bershidsky on Europe: Russian Assets Tumble

A standoff continued between Russian and Ukrainian troops in the Crimea on the third day since the Russian parliament gave President Vladimir Putin permission to send troops to Ukraine. Instead of a war, the move led to a burst of telephone diplomacy. Putin had his longest ever, 90-minute conversation with U.S. President Barack Obama. European leaders called Putin one after another, telling him he was out of line. It was, predictably, German Chancellor Angela Merkel, the most comfortable Western negotiating partner for German speaker Putin, who came up with a possible solution to the crisis, or at least a way to forestall a full-scale Russian invasion in Ukraine. The New York Times reported that Merkel came away with the impression that Putin was "in another world," but she did persuade him to agree to a "fact-finding mission" in Ukraine under the auspices of the Organization for Security and Cooperation in Europe, aimed at starting a political dialogue. If the mission becomes reality, there is no chance of fighting in the near future. Putin, however, has not made a public statement about his plans yet. It is clear that G7 leaders' threat to call off the G8 summit scheduled for next June in the Russian resort of Sochi is not enough to deter the Russian leader from drastic action. Perhaps Merkel's calming influence will do the trick.

As the possibility of a war with Ukraine and international isolation pushed all Russian financial instruments and the ruble down, the Russian central bank finally decided to defend the free-falling national currency and raised its refinancing rate from 5.5 to 7 percent. Russians, however, have rushed to banks and exchange offices to buy up dollars and euros, and the stock market fell by about 10 percent. The central bank can hardly stop the panic by monetary means: it is caused by overpowering fear and pessimism, both quite rational in the current situation. Though there are macroeconomic reasons for the ruble to weaken, a peaceful resolution of the Crimea conflict would cause it, and the Russian stock indices, to bounce back.

Despite the collapse of the biggest Bitcoin exchange, Tokyo-based Mt. Gox, which cost its customers $500 million in cryptocurrency deposits, the U.K. authorities are about to endorse the virtual currency. Her Majesty's Revenue and Customs announced that it would not charge the 20 percent value-added tax on Bitcoin trades or even on traders' margins. This means the U.K. is prepared to treat Bitcoin as money in the framework of an EU law that exempts payments and transfers of "negotiable instruments" from tax. Thanks to the ruling, London may soon become the capital of the Bitcoin world and the decentralized currency may yet rebuild its reputation after the recent scandals.

The European car market has been growing for the last five months, with new registrations up 5.2 percent in January. According to industry forecasts made public ahead of the Geneva Motor Show, car sales on the old continent will increase by 1 to 2.8 percent in 2014 after falling for the last five years for a total drop of 20 percent compared to pre-crisis levels. Manufacturers expect the growth to be driven by small, economical cars, including hybrids. In Geneva, several major carmakers are exhibiting their new small models, from Peugeot 108 to Volkswagen hybrid Gold GTE. Though the car market is putting the worst behind it, it has new priorities and new consumer tastes to deal with.

Swiss private bank Julius Baer took heed of a symbolic shareholder vote against its 20012 report that included awards to chief executive Boris Collardi and other executives for integrating Merrill Lynch's international wealth management business. The 2013 report contained no such awards, and Collardi's pay was reduced from $7.6 million to $6.7 million. By U.S. standards, Collardi's total compensation is relatively modest, and the cash part of it, $3.12 million, is deferred over five years. Getting executive pay under control without ruining competitiveness is not impossible: In 2013, Julius Baer increased assets under management by 35 percent to $288 billion and reported a net profit of $545 million.

(Leonid Bershidsky writes on Russia, Europe and technology for Bloomberg View. Follow him on Twitter at @Bershidsky.)

To contact the writer of this article: Leonid Bershidsky at lbershidsky@bloomberg.net.

To contact the editor responsible for this article: Marc Champion at mchampion7@bloomberg.net)

Leonid Bershidsky is a Bloomberg View contributor. He is a Berlin-based writer, author of three novels and two nonfiction books.
Read more.